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Nov. 3 — Global governments battling tax avoidance increasingly are pushing multinational corporations
for a bigger picture of how and where they pay taxes, leading to increasingly narrow
questions from company tax officers.

“We have a number of entities that are disregarded for U.S. tax purposes. When I fill
out the country-by-country form, how do I tackle that issue?” a panel observer asked
tax attorneys at the American Bar Association’s 27th Annual Philadelphia Tax Conference
Nov. 3.

When reporting taxes for the company’s Netherlands-based entity, she asked, “do I
fill out the Dutch taxes paid? What about U.S. taxes paid on that Dutch income? Should
that be attributed to the U.S. company that owns them? Or do I just ignore it all
together?”

Such detailed questions about country-by-country reporting, the Master File, and local
reporting requirements dominated a panel discussion on the Organization for Economic
Cooperation and Development’s project to combat base erosion and profit shifting.

“Footnotes,” was the advice from panelist Peter Barnes, of counsel in the international
tax group at Caplin & Drysdale Chartered in Washington. “I think you’re going to have
to flag it on the form.”

The U.S. and 18 other countries have adopted country-by-country reporting, and 14
more are in draft stages of adopting it, Barnes said. BEPS country-by-country reporting
requirements apply to multinational enterprises with aggregate annual income of 750
million euros ($833 million), meaning that about 4,000 companies globally—including
2,000 U.S. companies—would be affected.

Expect Follow-Up Questions

While many countries are being lenient now about how companies should fill out their
country-by-country report, the expectation is that many will follow up with requests
later about how to reconcile the country-by-country reports with local tax information,
Barnes said.

Lincoln Terzian, an international tax practice partner at Grant Thornton’s Manhattan
office, agreed that many countries will likely seek clarification after the country-by-country
form is filed.

“Recognize there’s going to be further questions and reconciliation effort” from many
of the countries, he said.

Taxpayers have many complicated questions around country-by-country reporting that
have yet to be answered, said panelist Serge Huysmans, an international tax partner
for Ernst & Young LLP in New York. For example, how are hybrid entities treated? How
are branches treated? “Countries are taking a different view to this, and since we
don’t have the rules yet, we can’t answer these questions,” he said.

Master File

Many companies also are raising questions about the Master File, a single document
that lays out an overview of the company’s businesses, transfer pricing policies,
and agreements with tax authorities, said panel chair Elizabeth Galvin, a partner
with Ernst & Young in Philadelphia.

For example, it is still unclear whether companies will be able to create different
master files for different regions. “I think there are different interpretations of
whether we can file more than one master file,” she said.

There also are unanswered questions about what will need to be in every county’s local
file, Barnes said. “Mexico will ask for this, Germany will ask for that, Austria won’t
ask for anything but will expect something,” he said.

Some companies that may not have reporting requirements in certain countries because
their business activities there fall below certain thresholds may come under new scrutiny
from local tax authorities due to disclosures in the Master File, Terzian said. That
may require more local documentation, he said. “Remember, you want everything to reconcile.”

Privacy Concerns

Companies are also wondering about confidentiality and how much information about
their business they will have to publicly disclose.

Europe is already floating proposals about disclosure requirements, EY’s Huysmans
said. “Get ready. These things are likely to become public.”

The disclosures could be a big change for private companies that aren’t used to having
their business practices revealed to the public, said panelist Paul B. Nolan, vice
president for tax and government relations at global spice company McCormick &
Co. Inc.

“If you’re a publicly traded company, you’re used to public disclosure,” he said.
For private companies, on the other hand, “this could be a little bit of a shock to
the system.”

To contact the reporter on this story: Leslie A. Pappas in Philadelphia at
LPappas@bna.com

To contact the editor responsible for this story:
Molly Moses at
mmoses@bna.com

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